Investing into India’s fourth sine wave

History shows seven out of the past eight General Elections have been followed by strong, positive stockmarket returns

SummarySeven out of the past eight General Elections
have been followed by strong stockmarket returns.

With the Indian stockmarket having rallied by ~7% over the past 30 days, with the broader economy still showing no signs of an economic recovery and with the General Elections in India less than a month away, is there a case for investing in the Indian market?

Our analysis of the political as well as economic dynamics in India over the past three decades suggests that the case for investing in India before the markets discount the election-specific outcomes is overwhelming.

India has traversed three ‘sine waves of economic growth’ over the past three decades

History suggests that India has undergone three distinct waves in its ‘politics’ as well as ‘economy’ over the past three decades. The synchronisation between the political and economic cycles is extraordinary and points to the interconnectedness of the two aspects of India.

The remarkable synchrony between political and economic cycles in India

The first sine wave of economic growth (FY85-92) was catalysed by the Congress’s landslide victory in the 1984 elections. The economic reforms which Indira Gandhi had already kicked-off prior to her assassination combined with incremental reforms under the new PM, Rajiv Gandhi, gave India its first growth boom and a strong stockmarket rally.

The second sine wave of economic growth (FY93-03) was catalysed by the formation of a Congress-led minority government headed by a proactive Prime Minister, PV Narasimha Rao, in 1991. The formation of this government combined with the tailwind of economic reforms administered in CY91 led to the second sine wave of economic growth in India accompanied by the scam-riddled stockmarket boom in the early 1990s.

The third sine wave of economic growth (FY04-14) was catalysed by the formation of the UPA government in the 2004 General Elections. The formation of a government with a clear majority combined with the tailwind of reforms administered by the NDA led to the materialisation of India’s biggest economic boom alongside an exuberant stockmarket.

India appears to be on the cusp of the ‘fourth sine wave of economic growth’

India’s three decade long history makes it evident that each of the sine waves is characterised by remarkable similarities.

Firstly, each sine wave of economic growth has begun with the conclusion of a General Election. History suggests that whilst every General Election may not necessarily trigger an upswing in the GDP growth rate, if the conclusion of the General Election is accompanied by a tailwind of economic reform then the birth of a sine wave of GDP growth is almost